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Hotel, Travel Associations Oppose Possible Tax on Rewards Programs

Hotel and travel groups last week voiced concern over a proposal from the Internal Revenue Service that could lead to a new tax on loyalty rewards programs for hotels, airlines, rental cars and other services.

The groups — Airlines for America, the American Hotel & Lodging Association, the U.S. Travel Association and the American Resort Development Association — sent a letter to Treasury Secretary Jacob Lew last week asking him to omit the proposed tax from the department’s 2014-2015 business plan, which would go into effect July 1.

“Any change in accounting rules could result in billions of dollars in lost revenue to states and localities, as well as significant harm to small-business franchise owners,” the group wrote.

This is how rewards programs currently work: Every time a customer accrues points — say, 1,000 hotel points during a one-night stay — the hotel company sets aside a cash equivalent in a separate fund. When the customer redeems their points, the cash is transferred out of the fund. Under the proposed new rules, companies would be taxed every time a customer redeems their points.

“All of a sudden, those 1,000 points are effectively worth about 650,” said Katherine Lugar, president and chief executive of American Hotel & Lodging Association. “There is no question that diluting the value of loyalty programs will negatively affect travel.”

Leisure travel — which nationally accounted for $621.4 billion in spending last year and is often booked using rewards points — is likely to be hit hardest, Lugar said. (Business travelers, by means of comparison, spent $266.5 billion last year, according to the U.S. Travel Association.)

“The loyalty programs are something that continue to attract repeat customers,” said Erik Hansen, senior director of domestic policy for the U.S. Travel Association.

A spokeswoman for the Treasury Department declined to comment.

Meanwhile, President Obama last week announced initiatives to encourage more international travel to the United States. The biggest priority, he said, was to make it easier for foreign travelers to secure visas.

Among other measures, the president said he will add 2,000 Customs and Border Protection officers over the next two years and increase the number of automated passport control kiosks at major airports. The secretaries of Commerce and Homeland Security are also looking into ways to shorten wait times for passport and customs processing.

“The U.S. took a big step today in recognizing that it’s time we bring travel into the 21st century,” Arne Sorenson, chief executive of Marriott International, wrote.

Sorenson and other travel industry executives, including W. Edward Walter, president and chief executive of Host Hotels & Resorts, met with the president to discuss their priorities for the coming year.

“The U.S. has lost some ground in drawing foreign visitorxs since 2000, from 17 percent of the market to 13 percent,” Sorenson wrote. “The president’s plans can help us regain our share.”